workers compensation: dirty little secrets. professionalcommercial fidelity & surety program...

Workers Compensation:Dirty Little Secrets

Professional

Commercial

Fidelity&

Surety

Program

ClientServices

Workers Compensatio

n Data

Analysis

Insurance

Personal

Certificate&

ContractManageme

nt

Claims

LOSSES

Only Item In Your Control?

Designed to measure whether losses are better or worse than

expected

Purpose and Theory of Experience Rating

If Worse….

PUNISHED!

( You have to pay more )

If Better…

REWARDED!

( You pay less )

Thinking a MOD of 1.0 is good is a common misunderstanding

This is like saying a “C” is a good average

Published Rates Represent the Average Company

To lower modification, you must first understand the MOD

formula

What Drives Formula?

Loss Frequency

Loss Severity

Misallocation of Payroll

“Fairness” vs. “Responsibility”

The Experience Rating Process is a job of balancing…

We have a complex formula that takes into consideration…

Size of the Company

Possibility of Unexpected Accidents

Differences Between Loss Frequency and Loss Severity

How is this accomplished?

Actual Primary Losses

+Ballast Value

Weighting Value

X

Acutal Excess Losses

Expected Primary Losses

Ballast Value

+

+ +

(1- Weighting Value)

X

Expected Excess Losses

+

Weighting Value

X

Expected Excess Losses

+

(1- Weighting Value)

X

Expected Excess Losses

Experience Modification Model

Experience Modifier = Total Incurred Losses (Open Reserves,Actual

Paid)

  Expected Losses

2.00 1.00 0.50

1.00 1.00 1.00

A mod of 1.0 is average

A mod greater than 1.0 (debit mod) pay more

A mod less than 1.0 (credit mod) pay less

= 2.00 = 1.00 = .50

In Simpler Terms…

Experience Modification Worksheet

This is sent to you 18 months after your policy is effective

WHY???

They are required to tell you what your experience is

WHY???

Since 1919 an insured has a right to challenge open reserved

But must be done within the 6th month

Later than 6th month the experience modification is

established

Which is the most important date for your renewal?

A. 6/15/06

B. 8/15/06

C. 9/15/06

D. 1/15/06

Your Workers Compensation is effective 2/15/06…

Unit Statistical Plan Filing Date

8/15/06

Next year modification is promulgated…

Is the payroll allocated correctly?

Are they the right classification?

Are the losses and loss reserves correct?

Any information on the Experience Rating Worksheet must be challenged by this date

9/15/06

60 days prior to unit statistical plan filing date

6/15/06

60 days to work on reserves

30 days prior to renewal

Time to evaluate funding options

1/15/06

Funding Options Guaranteed Cost

Deductible Program

Retrospective Rating

Join a Self Insure Group*

Establish a Self Insured Program*

Form a Captive*

* Need at least 6 months to evaluate

The correct answer is….

A. 6/15/06

What do you audit?

Verify accuracy of reserves and review the circumstances that lead to injury

Review claims investigation procedures , including subrogation and 2nd injury fund

Review attending physicians reports and independent medical reports

Review the potential for returning the claimant to either full or light duties, medical rehabilitation and vocational rehabilitation

If utilize medical or vocational rehabilitation, review the appropriateness of this service

Request activity checks and surveillance by insurance company or 3rd party administrator if appropriate

Determine whether the insurance company has requested:

Appropriate hearings, including discontinuanceAppropriate hearings, including discontinuance

Earning capacityEarning capacity

Vocational rehabilitationVocational rehabilitation

Fraudulent claimsFraudulent claims

Impartial physiciansImpartial physicians

Non-compensable claimsNon-compensable claims

Review the lump sum demand and advise on the appropriateness of a settlement

Advise client as to status and appropriate direction of the claims by providing claim status reports

What is an Incurred Loss?

Open Reserves

Amount Paid

Incurred Loss

+

Why concern about Class Codes?

5474 Construction Classification N/A—MN

PHRASEOLOGY PAINTING OR PAPERHANGING NOC & SHOP OPERATIONS, DRIVERS.

Includes the painting of metal storage tanks, fire escapes, staircases, balconies, shutters, window frames or sash. Painting ship hulls, metal structures over two stories in height or bridges to be separately rated.

5037 Construction Classification N/A—CA, NJ, OR

PHRASEOLOGY PAINTING: METAL STRUCTURES—OVER TWO STORIES IN HEIGHT—& DRIVERS.

Includes shop operations. The painting of metal storage tanks, fire escapes, staircases, balconies, shutters, window frames or sash to be separately rated as 5474— Painting NOC.

CROSS-REF. Painting: Metal Bridges & Shop Operations, Drivers.

SCOPE Code 5037 is applied to insureds engaged in the painting of metal structures which exceed two stories in height. For commercial structures, a "story" is defined as being fifteen (15) feet in height.

Code 5037's footnote indicates that painting of metal storage tanks is assigned to Code 5474. The fact that a metal tank is supported by a tower or other supporting device which makes the combined height of the tank and supporting devices exceed two stories in height would not preclude the assignment of painting these storage tanks to Code 5474. Oil or gasoline storage tanks, gas holders and silos typify those types of tanks, the painting of which is contemplated by Code 5474.

5462 Construction Classification  N/A—CAGL Class: 13590

PHRASEOLOGY  GLAZIER—AWAY FROM SHOP & DRIVERS

SCOPE  Code 5462 is applied to employees of glass merchants engaged in the delivery and installation of plate glass windows in storefronts or elsewhere, the installation or replacement of window glass in houses and commercial buildings (regardless of height) and the installation of mirrors. The operations contemplated within the scope of this classification apply to glaziers' activities away from permanent shop locations. Refer to Code 4130—Glass Merchant for employees of glass merchants who work in a permanent shop and are responsible for the storing or preparation of glass prior to its installation4130

GL Class: 13590 PHRASEOLOGY  GLASS MERCHANT. Includes bending, grinding, beveling or silvering of plate glass.

SCOPE  Code 4130 is applied to glass merchants who conduct their operations at a permanent shop location. The operations include the receiving, storing and selling of glass such as window glass, plate glass, safety glass for automobiles, mirrors and other types of glass. The classification contemplates the cutting of glass to customers' specified dimensions, beveling, buffing, polishing, silvering of plate glass and the installation of glass into frames provided such work is performed in the shop. Employees engaged in the delivery and installation of new or replacement windows away from the shop are properly classified to Code 5462—Glazier—Away from Shop & Drivers

Effect of Misclassification

Class

5462

4130

Additional

$100,000

$200,000

Rate

17.96

5.77

12.19

12,190

24,380

Class

5037

5474

Rate

50.72

9.25

41.47

41,470

82,940

Working on existing claims is only half of the solution

Safety and Loss Control is the other 1/2

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